StudioNow's three-year marriage to AOL

A corporate love story: StudioNow rebounds strong from sale to AOL

 

Screen Shot 2013-10-17 at 12.32.12 PM.png

Back in July 26, 2013, the Nashville Business Journal ran the below piece on StudioNow. See the article on NBJ here

 Nashville entrepreneurs David Mason and Adam Solesby spent three years creating and building a network of videographers, editors and producers called StudioNow. Then they sold the company to AOL Inc. for $36.5 million in 2010.

Three years later, StudioNow is on its own again. New York-based AOL is now a minority partner, and an original investor is back in the relationship.

For entrepreneurs, selling to the big boys means big dollars and big validation. Along with going public, it is an ultimate goal post for many startups.

A high-risk, high-reward marriage to an industry giant can be a startup’s launch pad. Or it can be the beginning of a downward spiral, as new management can curb innovation or simply shut the company down.

AOL bought StudioNow among a handful of acquisitions as it sought to regain its place among tech titans, with video as a key piece of the strategy. But the momentum was interrupted when a new partner stole away AOL’s attention.

Yet StudioNow is emerging from AOL with twice as many employees and new partnerships with Fortune Global 500 companies including IBM, Toyota Motor Corp. and Verizon Communications.

The relationship between the Internet giant and the Nashville startup didn’t work out the way either party envisioned when the deal was signed. AOL officials wouldn’t comment for this story, but Mason said the three-year ride put StudioNow on a new playing field.

‘A different type of content’

This wasn’t Mason’s first swing for the fences.

He launched StudioNow in 2007, having already sold his first startup, SpeedServe, which after a merger with BuyComp became Buy.com and eventually went public. Recognizing the fast-growing market for online video, Mason and Solesby — who also worked at SpeedServe and Buy.com — raised capital to create a network of about 20 videographers.

“There was going to be a growing need to create a different type of content, a different kind of economics in the YouTube era than what had been existing in the last 20 or 30 years with TV production,” Mason said.

StudioNow helped customers design affordable projects using videographers and film teams in various locations instead of relying on traditional production in studios.

When the company first started, its customers were mainly consumers wanting videos of special life events. After six months, Mason and Solesby set their sights higher, ramping up marketing in hopes of becoming a $100 million company. Companies were reaching out to them for online training or product videos, so the duo decided to shift their focus to businesses, going from $100 videos to $2,000-$3,000 projects.

StudioNow pitched to CitySearch and landed access to its customer base, offering video as part of companies’ listings. Then they went after Yellow Pages, gaining access to an even larger pool of potential customers. They signed with Simon & Schuster Inc., Rivals.com and Athlon Sports. And in summer 2009, they targeted AOL as their next big milestone.

 

Screen Shot 2013-10-17 at 11.16.11 AM.png

Making the deal

At the time, AOL was splitting from Time Warner Inc. and losing ground in the tech world with drops in Internet subscribers and advertising sales. The Internet giant, which closed a merger with Time Warner for $111 billion in 2001, had a market value near $3 billion when the companies separated in December 2009.

AOL CEO Tim Armstrong, a former Google sales executive who was named to AOL’s top post in March 2009, was charged with turning around the company. Expanding editorial content was part of that strategy.

Mason said he had “serious talks” with other Internet media companies about potential mergers as interest in online video content grew. Google had bought YouTube in 2006, and media and tech companies were scouting partners. When StudioNow’s conversation with AOL turned from a client proposition to an acquisition, it was Armstrong’s vision that swayed Mason.

“I had a lot of respect for him in terms of what he had done at Google,” Mason said. “He was very bullish on video and immediately understood the resources that StudioNow had with our business model and our capabilities, and he was eager to put it to use. For me, … whether it was selling or going public or growing to $100 million, I just wanted the model to be validated and to show that it actually could grow into something that was generating significant volume of high-quality video. … Tim, and his plans with video, had the intention to do exactly that.”

In January 2010, with the blessing of StudioNow’s local investors including Claritas Capitaland Clayton Associates, Mason made a cash and equity deal with AOL. Three months later, he became senior vice president of AOL Content Platform.

“When you can return four times your money in 19 months, that’s a pretty compelling argument to sell the business,” said Matt King, managing partner at Clayton Associates, which invested $1.9 million in StudioNow. “The flip side is, could you have waited and gotten a lot more money? That’s always the question. In that scenario, I don’t think we could have done better for our investors than that.”

Mason’s role went from overseeing 20 people, the majority of whom were in Nashville, to 150 people worldwide, and he began focusing on how to transform AOL Media and helping its more than 100 brands reach a larger audience and incorporate more online video. But while he focused on the AOL brand, his work on the rapidly expanding StudioNow dropped to just a fraction of his time.


 

Screen Shot 2013-10-17 at 11.15.50 AM.png

The new partner

In February 2011, AOL’s romance with video began to wane.

Armstrong inked a deal to buy The Huffington Post for $315 million. Arianna Huffington, who launched the digital news aggregator and blog, became head of AOL’s editorial content.

The wildly popular Huffington Post had what AOL Media was seeking to build, so the company put the brakes on the efforts StudioNow’s team and others were making to transform its content creation system, Mason said. David Eun, president of AOL Media, left the company, and Mason shifted his focus back to developing StudioNow, which had doubled revenue in the past year.

“AOL, from an editorial standpoint of creating original video content for AOL properties and brands, it never took off in the way we had all envisioned,” Mason said.

“It wasn’t going to happen overnight, but it needed time to play out and AOL just didn’t have the luxury of waiting that long. AOL Media needed to be transformed much more quickly, and The Huffington Post was the answer.”

In fall 2012, Mason knew the love affair was over. The demand for online video was growing, and StudioNow needed capital to seize the opportunity, but it wasn’t a focus for AOL.

So when AOL was setting its 2013 budget priorities, Mason sent an email to Armstrong, essentially proposing a breakup. If StudioNow became an independent company again, it could seek new investors to fund its growth.

Armstrong supported the idea, realizing “the best opportunity to grow the company was not within the walls of AOL,” Mason said.

“It was like our home went away once AOL Media was shifted over to The Huffington Post,” he said. “At the same time, the overall market opportunity for StudioNow still existed, and we wanted to more aggressively go after that market.”

Going it alone again

Mason began working out the details to part ways with AOL.

A new business entity was formed, and AOL transferred its StudioNow assets to the new company in exchange for a minority stake in the new company. Claritas, which had provided about $5 million in capital before AOL bought StudioNow, invested in the company again, also gaining a minority stake. Combining the transferred assets from AOL and Claritas’ capital, the investment in the new StudioNow was about $12 million.

The company now has 40 employees and a network of 6,000 professionals around the world with expertise in filming, editing, graphics, voice-overs, acting, directing and animation.

Mason is still dreaming big. He still believes StudioNow can be a $100 million company, maybe even $1 billion.

StudioNow’s three years with AOL only added to the company’s potential, he said. At AOL, StudioNow began working more on developing advertising for companies, creating video concepts for several Fortune 500 companies. Its team of production coordinators and creative directors has grown to 25 people, up from four in 2010. Mason also has hired a new sales chief, Leslie Darling of ComScore, to ramp up partnerships with big brands and media companies, who are increasingly interested in not just 30-second ads, but mini-documentaries, testimonials, ‘edutainment’ and other branded content.

“The opportunity is gigantic,” he said. “Online video, online video advertising is growing by leaps and bounds every single year. … The market is just kind of getting to the point we can really excel.”

So while the sale to AOL didn’t last, there’s no question, Mason said, that the brief connection only bolstered StudioNow’s future.

“In a lot of situations, there would be an abrupt end, [where the] big company says, ‘It wasn’t worth it,’ and the entrepreneur says, ‘It was a disaster, I can’t work for those people.’ That isn’t the outcome of this story,” Mason said. “There’s still a very close partnership.”

Still, while AOL and StudioNow have decided they can still be friends, for now, Mason has no plans to find another suitor.

The AOL-StudioNow courtship

January 2007: David Mason and Adam Solesby founded StudioNow in 2007, with John WallaceDoug Marrs and David Corts on the team.

March 2009: AOL announces it is hiring Tim Armstrong as CEO to turn around the struggling Internet company.

December 2009: AOL splits from Time Warner Inc.

January 2010: AOL buys StudioNow for $36.5 million. The company’s network of film professionals includes more than 3,000 individuals worldwide and revenue is in the “low millions” of dollars.

March 2010: Mason becomes senior vice president of AOL Content Platform, overseeing 150 people.

February 2011: AOL buys The Huffington Post for $315 million.

Fall 2012: Mason suggests to Armstrong that the two companies part ways.

January 2013: StudioNow announces its renewed independance, with Claritas Capital and AOL as minority partners. It employs more than 40 people full-time, has 6,000 video professionals in 52 countries in its network, with revenue in the tens of millions.

 

Posted
AuthorDaniel Collins